Land Bank: Fixed Income Investor Roadshow - FY2019Q3
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Land Bank:
Fixed Income Investor Roadshow – FY2019Q3
Land Bank Presentation 1
Investor Roadshow – FY2019Q3
Key Contacts
Land Bank
Bennie van Rooy Konehali Gugushe
Acting Chief Executive Officer Acting Chief Financial Officer
+27 12 686 0914 +27 12 686 0941
BVanRooy@landbank.co.za KGugushe@landbank.co.za
Sydney Soundy Mohammed Alli
Executive Manager: Strategy and Communication General Manager – Investor Relations
+27 12 686 0881 +27 12 686 0519
SSoundy@landbank.co.za MMAlli@landbank.co.za
Stefan Jansen van Vuuren
General Manager – Treasury
+27 12 686 0783
Sjvanvuuren@landbank.co.za
Arrangers – Rand Merchant Bank (RMB) Arrangers – Basis Points Capital (BPS)
Delia Patterson Sisanda Tuku
DCM Distribution Chief Executive Officer
+27 11 282 1358 +27 11 783 6136
Delia.Patterson@rmb.co.za Sisanda@Bpscapital.co.za
Angela Mangope Zefa Nsibande
DCM Origination DCM Transactor
+27 11 282 1358 +27 11 783 6136
Angela.Mangope@rmb.co.za Zefa@Bpscapital.co.za
Land Bank Presentation 2
Contents
1. Business Overview
2. Land Bank 2023/2024
3. Financial Overview
4. Funding Matters
5. Debt Management Programme
6. Interest Rate Risk Management
7. March 2019 Issuance – DRAFT Term Sheet
Land Bank Presentation 3
Business Overview
Land Bank Presentation 4
Governance Matters
Board Compositions Shareholder Executive Authority
1 – Reappointed for 3 years with effect 1 June 2018 Minister of Finance
2 – Newly appointed for 3 years with effect 1 June 2018
3 – Reappointed for 3 years with effect 1 October 2018 Accounting
4 – Mr. TP Nchocho resigned in Dec 2018. Refer Interim Management Structure Board of Directors
Authority
5 – New incumbent starts 1 March 2019
Mr. MA Moloto1 Ms. D Hlatshwayo1
Ms G Mtetwa Ms. DN Motau Ms. SA Lund1
Chairperson Deputy Chairperson
Dr. S Cornelius2 Ms. TT Ngcobo Adv. S Coetzee3 Ms. M Makgatho3 Mr. M Makgoba2
Board Committees
Risk and Governance Audit and Finance Human Capital Social & Ethics Credit and Investments
Committee Committee Committee Committee Committee
• Enterprise Risk Management • Internal and External • Monitor, review • Monitor, review • Review and recommend credit
Framework, Governance Audit matters and oversee all and oversee all policies, frameworks as well as
Architecture, Risk Appetite • Accounting policies Human Capital Social, Ethics and prudential limits and
and Tolerance Framework and methodologies matters Environmental guidelines
• Approve the Bank’s Risk • Financial matters matters • Review and approve or
Management Plan recommend credit facilities in
• Review and Monitor the line with Delegations of Power
management of all Risks in • Monitoring
the organisation
All Board Committees are accountable to the Board
Executive Committee Exco Accountable to
Board
Vacant5 Mr. B van Rooy4 Ms. K Gugushe4 Mr. F Stiglingh Mr. S Soundy Ms. M Dlamini
CEO CFO CRO EM: Portfolio Management EM: Strategy EM: Human Capital
Dr. L Magingxa Vacant5 Ms. L Ndlovu Mr. S Sebueng Mr. M Mzaidume
EM: Agri Economics EM: CB&SI EM: CDDB EM: Legal (Company Secretariat)
Land Bank Presentation 5
Governance Matters
Interim Management Structure
Mr Bennie van Ms Kone Mr Sydney Soundy Mr Faride Stiglingh Ms Loyiso Ndlovu Mrs Unathi Magwentshu
Rooy Gugushe EM: Strategy & EM: Portfolio EM: Commercial EM: Corporate Banking and
Acting Chief Acting Chief Communications Management Services Development and Structured Investments
Executive Officer Financial Officer Business Banking
Starts 1 March 2019
Ms Nafiza Khan Mr Sakhumzi Diza Mr Stephen Dr Litha Magingxa Ms Mpule Mr Maniki Rakgalakane
Acting Chief Risk Acting Chief Risk Sebueng EM: Agricultural Dlamini MD: Land Bank
Officer: Risk Officer: Credit EM: Legal Economics & EM: Human Insurance Company
Services Advisory Capital
Land Bank Presentation 6
Industry Matters
Drought
Crop Estimates 2018/2019
• Apart from the Western, Eastern and Northern Cape
• Insufficient rain during optimal planting periods were experienced to the
weather patterns have vastly improved with the outlook
west of the country at the start of the new grain season.
for another good rainfall season in the “summer crop”
areas. Summary of Land Bank’s position in relation to the • Yellow maize and soya plantings proceeded in Mpumalanga, eastern Free
aforementioned: State and Gauteng as expected. White maize and sunflower plantings
delayed, but sufficient surplus of white maize from previous seasons.
Delivery Channel Exposure NPL Collateral 1
• Final hectares planted is ca. 2% less overall than 2017/2018 season.
Eastern Cape R1,197.1m R57.6m R212.8m • Better rains are predicted for the remainder of the season, but final yields
may be lower due to late planting dates.
Northern Cape R1,617.3m R10.4m R34.0m
• Some international crop observers estimate that South Africa’s 2018/19
Western Cape R830.4m R50.1m R242.5m maize harvest could vary between 10.7 and 11.5 million tonnes. A harvest
Total R3,644.8m R118.1m R489.4m at this level would mean that South Africa would be self-sufficient in the
2019/20 marketing year, accounting for an opening stock from the previous
1 – Collateral In respect of NPL’s only season.
Foot and Mouth Disease
• Drought relief support extended to date:
• In January, an outbreak of FMD was detected in the Vhembe district in
FY2019Q3 FY2018 FY2017 Limpopo, a FMD-free area and South Africa’s meat exports were
Loans approved R392.5m R334.8m R207.6 m suspended and weaner calf & beef carcass prices have declined as a result.
• The impact of the loss of the FMD-free status go beyond meat products
Loans disbursed R339.9m R302.8m R117.8 m
and affect exports of other livestock products. Free zone status can be
Support available R7.5m R65.2m R192.4 m regained within a year.
• Pipeline for consideration: • Task teams were put in place to convince SA's trading partners not to
Applications: 11 suspend the import of red meat and its by-products from SA. Following
Amount: R52.5m these engagements, trade restrictions on the export of processed products
have been relaxed by many trade partners
• Land Bank could potentially avail some of it internal funds
• Land Bank’s exposure to the affected area is minimal and FMD will
to provide further assistance.
therefore have no meaningful impact on the Land Bank’s loan portfolio.
Land Bank Presentation 7
Industry Matters
Land Reform
Risks: Opportunities:
• We have identified opportunities around the implementation of • In the case of well-executed land reform that is supported by the
expropriation without compensation, however it would be prudent necessary institutional arrangements and grant funding:
to caution that if this process is poorly executed it could have
damaging consequences for the Bank as a creditor, bringing the The Bank would be able to increase lending for
organisation’s sustainability under threat. Poor execution would transformational purposes and grow the sector;
include: Additional new-generation farmers, including youth and
women, would be able to enter the sector thus improving
Productive land being taken out of production; equality and inclusivity;
No protection for creditors; New-generation farmers, especially youth, would have a
No effective institutional processes; positive impact on the age profile of the sector and
Poor and undefined process for selection of beneficiaries; support a future client base for the Bank;
Corruption; and Additional farmers would enable job creation, especially if
Lack of comprehensive support for beneficiaries. capacity is created in food-processing and the Bank could
undertake value-chain based financing.
• Uncertainty could jeopardise the ability of the Bank to raise funding
in the domestic market.
• Funding agreements with “expropriation” events of default clauses
included amount to R9.0 billion, with “cross defaults” across the
R41 billion funding portfolio, which would require government
intervention to settle our lenders.
Conclusion:
While the proposal around expropriation without compensation has taken precedence, we consider improving the overall land reform
programme to achieve its stated objectives as a key departure point for the process.
In our opinion, as part of the broader land reform programme, expropriation (with or without) compensation, if it is well executed, has the potential for
some significant economic and social benefits that may accrue to the economy of South Africa in general and to the agricultural sector in particular.
Land Bank Presentation 8
Land Bank 2023/2024
Financial Sustainability vs. Development Impact
Land Bank Presentation 9
Land Bank 2023/2024
Future Client Segmentation and Focus
Future focus
Current Commercial Unit
client focus
Large/ Large/
Mega farmers Mega farmers
Medium scale Future focus Medium scale
commercial farmers Development commercial farmers
Unit
Smallholder farmers Smallholder farmers
Subsistence farmers Subsistence farmers
Current client focus Future client focus
Land Bank Presentation 10Land Bank 2023/2024
“Development” Land Bank
Land Bank Presentation 11“Development” Land Bank
Factors constraining smallholder farmers
• Lack of affordable access to finance by Development Clients – the funding structure of Land Bank is effectively
“Commercial”.
• Beneficiaries’ balance sheets are Highly Geared (Not enough equity).
• Lack of grant funding to support projects.
• Inadequate recapitalisation financing.
• Mismatch in tenure where land is procured through lease arrangements.
• Lack of risk mitigation instruments / structures.
• Inadequate Risk Insurance for projects.
• Lack of appetite for investments by Private Capital.
Land Bank Presentation 12“Development” Land Bank
Foundation Principles
The foundation principles for a more effective development finance model for agriculture include the following:
• Expand the role of the Bank beyond merely providing financial services to smallholder farmers and agri-
entrepreneurs;
• Debt financing on its own is not sustainable or adequate to address the challenges;
• Secure access to suitable land at an affordable cost and for a reasonable term is critical;
• Pre-investment support is required to develop business cases that are owned by the farmer and responds to both
the bank and client’s needs;
• Technical support and extension type services are an integral part of the solution; and
• Blended financing that includes private sector funding and government grants administered by Land Bank is one
aspect of the solution.
Land Bank Presentation 13“Development” Land Bank
Potential Pre- and Post-finance Activities
Expand role of Land Bank beyond receiving, evaluating and financing applications. Holistically address and support the
missing elements in development farmer environment by:
• Providing enhanced support in the pre-financing preparation stage through:
Facilitating preparation of projects and business plans to bankable stage.
Sourcing designated grant funding for this purpose.
• Broadening Land Bank’s financing offering by:
Incorporating mezzanine debt to address equity and collateral shortfalls.
Combining Bank balance sheet mezzanine funding with grants to offer lower blended mezzanine
lending rates.
Conventional secured Land Bank senior debt to accompany mezzanine.
• Strengthening post-financing operational performance through providing:
Externally funded and monitored comprehensive business support and mentoring by co-operatives,
industry bodies etc.
Funded LBIC insurance risk mitigation.
The Pre- and Post Finance Services will come with additional value-adding but non-revenue generating activities which
will not be possible without appropriate government funding and grant support. The split of the Bank into the
Development Bank and the Commercial Bank is premised on appropriate government support.
Land Bank Presentation 14Financial Overview
Group
Land Bank Presentation 15Performance Overview: Summary
Salient Features - Group
Var % FY2019H1 FY2018H1 1 FY2018
Net interest income - R 580.4m R 583.1 R 1,278.4m
Impairments (26.4%) R 108.9m R 147.9m R 55.5m
Operating expenses 4.7% R 298.9m R 285.4m R 654.5m
Profit after Other Comprehensive Income 20.7% R 63.1m R 52.3m R 193.9m
- Banking Operations +100% R 61.9m (R 4.6m) R 182.3m
- Insurance Operations (97.9%) R 1.2m R 56.3m R 11.6m
Cash 23.1% R 3.2bn R 2.6bn R 2.4bn
Investments - R 2.4bn R 2.4bn R 2.6bn
Net loans and advances 5.2% R 41.8bn R 39.7bn R 43.4bn
Total assets 6.6% R 48.5bn R 45.5bn R 49.5bn
Key Ratios
Net interest margin 1 (3.4%) 2.8% 2.9% 2.9%
Cost-to-income ratio 1 4.9% 63.9% 60.9% 60.5%
Impairment ratio (3.8%) 5.1% 5.3% 4.7%
Non-performing loans (27.5%) 7.4% 5.8% 6.7%
NPL coverage ratio (17.4%) 75.8% 91.8% 70.2%
1 – FY2018H1 results have been restated to reflect the impact of the LDFU reclassification from “Discontinued Operations: Disposal Group”
to “Discontinued Operations” which resulted in certain liabilities and Interest expenses being reclassified to “Continuing Operations”.
Land Bank Presentation 16Performance Overview: Balance Sheet
Statement of Financial Position – Strong Bank asset and liability profile
FY2019H1 FY2018H1 FY2018
Var % R’m R’m R’m
Cash and cash equivalents 30.1% 3,138.3 2,446.5 2,362.1
Net loans and advances 5.2% 41,817.2 39,748.5 43,418.5
Investments 1 2.8% 1,242.1 1,208.6 1,406.7
Assets of Discontinued Operations classified as held-for-sale 2 (94.8%) 9.9 188.9 147.3
Other assets 93.1% 830.5 430.2 398.0
Total assets 6.8% 47,038.0 44,022.7 47,732.6
Capital and reserves 4.5% 5,602.4 5,360.4 5,546.9
Liabilities 7.2% 41,435.6 38,662.3 42,185.7
- Funding liabilities 7.5% 40,944.4 38,081.9 41,576.3
- Other liabilities (15.4%) 491.2 580.4 609.4
Total equity and liabilities 6.8% 47,038.0 44,022.7 47,732.6
1 – Investments consist of:
• Investment in Subsidiaries - 350.0 350.0 350.0
• Investment in listed shares (35.0%) 128.1 197.0 146.3
• Unlisted investments +59.8% 480.4 300.6 565.1
• Assets earmarked for Medical Aid Liability 2 (21.4%) 283.6 361.0 345.2
2 – During FY2019H1, the Bank concluded a buy-out i.r.o. some “pensioners” at a cost of R66.4m. The liability had reduced to R311.9 million.
3 – As of FY2019H1, the “Out of Mandate LDFU portfolio” had reduced significantly following the conclusion of a number of sales. Post
FY2019/H1, the last property was sold and the legacy portfolio is now a thing of the past.
Land Bank Presentation 17Performance Overview
Loan Book segmentation – Significant contribution by indirect channels
Loan book Loan book
FY2019H1 30.3% FY2018 29.1%
69.7% 70.9%
CB&SI CDBB
CDBB (Delivery Channel) – R’bn CB&SI (Delivery Channel) – R’bn
26
24 15.0
* FY2019H1
14.5 FY2019H1
FY2018 14.0 FY2018
13.5
6 24.3
22.6
4 7.2 7.0
13.0
2 0.5 13.0
0.4 0.6 0.6
0 0.9 0.9 0.0 0.2
Direct Indirect - SLA Indirect - WFF Direct SI - Debt SI - Equity
CDBB = Commercial Development Business Bank * During FY2019H1, the SLA portfolio had reduced by ca. R1.7bn
CB&SI = Corporate Bank & Structured Investments following a good harvest in respect of the 2017/2018 season. This
Direct = Lending activities through Land Bank’s own infrastructure reduction is seasonal and the portfolio is expected to increase as we
progress through the working capital cycle of the2018/2019 season.
Indirect = Lending activities through intermediary partners, i.e. SLA, or WFF
Land Bank Presentation 18Performance Overview
Satisfactory loan book performance
Loan Performance - %
7.4% 6.7%
Loan book Loan book 7.6%
8.8%
FY2019H1 FY2018
83.8% 85.7%
Stage 1: Performing loans Stage 2: Under-performing loans Stage 3: Non-performing loans
20 2.5
CDBB - % FY2019H1 CB&SI - % FY2019H1
2.0 FY2018
15 FY2018
1.5
10
16.3% 15.6% 1.0 1.9% 2.0% 1.9% 2.0%
5 9.8% 8.6% 7.9% 6.7% 0.5
0 0.0
Total NPL Direct NPL Indirect NPL Total NPL Direct NPL
CDBB = Commercial Development Business Bank As at FY2019H1 there was a slight uptick in NPL’s largely in the CDBB
CB&SI = Corporate Bank & Structured Investments “Indirect” portfolio. This is not as a result of an increase in NPL’s in
Direct = Lending activities through Land Bank’s own infrastructure absolute values but rather as a result of the seasonal reduction of loan
book which decreased by ca. R1.7bn from FY2018
Indirect = Lending activities through intermediary partners, i.e. SLA, or WFF
Land Bank Presentation 19Performance Overview
Strong capital adequacy position
Following Land Bank’s voluntary introduction of a number of the
Total capital adequacy ratio
Basel Accord’s capital and liquidity risk management practices
-2.3% -1.2%
during FY2016, the Bank’s balance sheet has been significantly
strengthened. 18% 17.7% 17.3% 17.1%
16%
The Basel-like principles include: 5.7% 5.5% 5.2%
Total Capital Adequacy Ratio (TCAR) – Basel II standardised 14%
approach 12%
Liquidity Coverage Ratio (LCR) – Basel III; and 1.1% 1.1% 1.1%
Net Stable Funding Ratio (NSFR) – Basel III 10%
8%
Approved deviations:
6%
10.9% 10.7% 10.8%
CAR 4%
Inclusion of Government guarantees as Capital Supply 2%
LCR 0%
FY2017 FY2018 FY2019H1
High quality liquid assets
Roll-over rates Guarantees Tier 2 Capital Tier 1 Capital CAR Covenant
-0.1%
17.3%
17.30%
17.25% The year-on-year decline in CAR is as a
17.2%
17.20% -0.2% 0.0% result of slight decrease of R90 million
17.15% 0.1% in available guarantees included as
17.10% sources of “Capital Supply”
0.00%
FY2018 Guarantee Capital Movements RWA FY2019H1
(T1 + T2)
Land Bank Presentation 20Performance Overview
Strong Funding and Liquidity position
Cash Liquidity Cover Ratio +84.0%
+32.9%
3,500 400% +152.1% 394.4% 100%
3,138
+95.1% 214.3% 90%
3,000
200% 80%
2,362
R million
2,500 70%
150% 60%
2,000
50%
1,500
1,211 100% 85.0% 40%
70% 80%
60% 30%
1,000
50% 20%
500 10%
0% 0%
0 FY2017 FY2018 FY2019H1
FY2017 FY2018 FY2019H1
LCR LCR Target
The Bank’s cash requirements are driven by LCR. Net stable funding ratio
+25.3% +1.9%
Land Bank has access to a number of liquidity 120% 100%
108.6% 110.7%
facilities which it taps into from time to time, of 100.0%
100% 86.7% 90.0% 80%
which: 80.0%
80%
60%
60%
• R2.15 billion Committed 40%
• R0.50 billion Uncommitted 40%
20% 20%
As at 30 September 2018 all facilities were 0% 0%
FY2017 FY2018 FY2019H1
undrawn
NSFR NSFR Target
Land Bank Presentation 21Funding Matters
Land Bank Presentation 22Funding Matters
Strong credit rating supports funding profile
Commercial Funding:
• Land Bank procures funding for two distinct business
purposes: • Funding is raised from Institutional Investors and Commercial
Commercial Operations Banks
Development Operations • Funding is generally unguaranteed
• Limited sources of capital • Funding is applied for:
• Reliant on debt capital markets, as well as multilateral Corporate/ wholesale on-lending
institutions for funding Corporate and commercial agribusiness
Financing “primary” agriculture
Credit Rating: Financing “secondary” agriculture through the value
• Land Bank is rated by Moody’s chain
• Global Scale Issuer Rating: Baa3 (linked to Sovereign rating) General working capital requirements
• National Scale Issuer Rating: Aa1.za Development Funding:
• Last rating: 12 September 2018
• Funding is raised from Multilateral Institutions
Development Finance Institutions • Funding often requires Government Guarantees
Rating Land Bank DBSA IDC • Funding is applied for:
Agricultural “sector growth”
GSIR Baa3 Baa3 Baa3
Sector transformation in terms of ownership
NSIR Aa1.za Aa1.za Aa1.za
Emerging farmers
Commercial Banks
Development funding is ring-fenced and has strict disbursement
Rating ABSA First Rand Investec Nedbank SBSA conditions and reporting requirements.
GSIR Baa3 Baa3 Baa3 Baa3 Baa3
NSIR Aa1.za Aaa.za Aa1.za Aa1.za Aa1.za
Land Bank Presentation 23Funding Matters
Maturity Profile – RttM
Amortised Cost - RttM Total Excl. PIC/ CPD FY2019Q3 – Remaining time to Maturity “RttM”
FY2019Q3 R’m % R’m % 3.0%
Drawn Facilities 1,304 3.0% 1,304 4.1% 14.3% 0.2%
Drawn Facilities
< 1 Year 20,444 47.8% 9,628 30.1% 2.5% < 1 Year
1 – 3 Years 3,818 8.9% 3,818 11.9% 1 - 3 Years
3 – 5 Years 9,934 23.2% 9,934 31.1% 3 - 5 Years
47.8% 5 - 7 Years
5 – 7 Years 1,075 2.5% 1,075 3.4% 23.2%
7 - 10 Years
7 – 10 Years 6,102 14.3% 6,102 19.1%
> 10 Years
> 10 Years 92 0.2% 92 0.3%
Total 42,769 100% 31,953 100% 8.9%
Funding Strategy Liquidity position
• Land Bank continues to manage its refinancing risk responsibly, • The Bank’s liquidity position has been vastly improved with the
within the parameters of its MT Target of maintaining its reliance introduction of longer-dated funding, reducing call bond
on short-term funding (maturities < 12 months) below 50%. exposures, as well as keeping utilisation of committed and
uncommitted facilities to a minimum.
• As of FY2019/Q3, the short-term funding as a percentage of the
portfolio was 47.8%. This was adversely impacted by ca. • The Bank has furthermore voluntarily prepaid some loan
R1.4 bn (R500m LBK11; R900m SRN’s) longer dated issuances exposures which were maturing in a 12 month period, and that
rolling into < 12 months bucket. were expensive or included negative “rating triggers”
• Although the lengthening of the Bank’s funding maturity profile • As at FY2019Q3, the Bank had R3.4bn cash on balance sheet
has impacted on the Bank’s funding costs and therefore (R2.4bn in FY2018) with R500m uncommitted facilities and
profitability, the funding profile is now such that the Bank’s focus R835m committed facilities drawn with further access to
can shift to optimisation of funding costs. R1.315bn in committed facilities.
Land Bank Presentation 24Funding Matters
Reducing reliance on short-term funding
-31.1%
69.4%
70
65
60 56.8%
56.4%
54.8%
55 52.2%
50 47.8%
45.2%
45 43.6% 43.2%
40 +70.6%
35
30.6%
30
25
20
15
10
5
0
FY2015 FY2016 FY2017 FY2018 FY2019H1
ST Funding (maturities < 12 months) Term Funding
In line with Land Bank’s commitment to reduce reliance on short-term funding, the Bank has made great strides in
extending the maturity profile, thereby reducing refinancing risk and improving general liquidity levels of the Bank.
Land Bank Presentation 25Funding Matters
Diversified Investor Base
100% PIC & CPD
26.8% Banks
80% 41.1%
Institutional & Other
60% 80.9% 2.3% 24.7%
40%
56.6% 48.5% +329.2%
20%
7.8%
11.3%
0%
FY2009 FY2013 FY2019Q3
Land Bank’s investor relations strategy is bearing fruit. Renewed investor confidence is evident with the Bank seeing increased support from existing
funders as well as new investors/ funders. The Bank has also seen a return of investors that had previously left the Bank. The Bank has a well diversified
investor base across local debt capital markets, as well as foreign funding relationships with Banks and multilaterals.
FY2019Q3 Related Commercial Foreign Institutional Multi-lateral Agri
@ Nominal Parties DFI SOE Bank Banks Investors Investors Companies Total
Drawn Facilities - - - 802 - 502 - - 1,304
< 1 Year 10,816 300 1,001 872 - 6,553 - 902 20,444
1 – 3 Years - 65 - 684 - 3,069 - - 3,818
3 – 5 Years - - 690 3,708 - 5,535 - - 9,934
5 – 7 Years - - - 512 - 563 - - 1,075
7 – 10 Years - 276 - 634 3,354 - 1,838 - 6,102
> 10 Years - - - - - - 92 - 92
Total 10,816 641 1,691 7,212 3,354 16,223 1,930 902 42,769
% Distribution 25.3% 1.5% 4.0% 16.9% 7.8% 37.9% 4.5% 2.1%
Land Bank Presentation 26Funding Matters
Contraction in listed Bond Yields
350
Listed Bond Yield Curve FY2017
300 Bps over 3m JIBAR 285 FY2018/H1
269 ** FY2018
255*
FY2019/H1
250
225 220* FY2019/Q3
215
200 190
195
194
155
150 140 149
135
115
100 110 With Land Bank’s funding profile at an acceptable mix,
focus will now shift towards further compressing funding
spreads.
50
0
1YR 3YR 5YR 7YR 10YR
• Following the Bank’s public auctions in Aug 2017, Mar 2018 and Sept 2018 respectively, the Bank’s listed bond yield curve has significantly
improved which has contributed to improved Cost of Funding for the Bank
• The 7YR price point (*) previously translated from LBK24 (Fixed Rate Note Issued in FY2018/Q3) – point in time spread, subsequently been
replaced with LBK33 (Floating Rate Note Issued in FY2019/Q3)
• The 10YR price point (**) is translated from LBK28 (Fixed Rate Note Issued in FY2019/Q1) – point in time spread
Land Bank Presentation 27Funding Matters
Bond Yields – Land Bank, Govi’s and SOE yield curves
10.5 10.29% 10.37%
SOE’s Land Bank Govi’s 10.20%
10.10%
9.98%
10.0 9.85%
9.68%
9.46% 9.81% 9.87%
9.5 9.73%
9.56% 9.65%
9.16% 9.45%
9.32%
9.0 9.14% 9.12% 9.17%
8.64% 8.99% 9.06%
8.90% 8.83% 8.92%
8.5 8.31% 8.71%
8.48% 8.57%
8.06% 8.42% 8.37%
8.0 8.12%
7.64% 8.02%
7.88%
7.60%
7.5 7.67%
7.33%
7.0
6.5 Assumed 3m Jibar = 7.15% (as of 3 Jan 2019)
6.0
3m 6m 9m 1YR 2YR 3YR 4YR 5YR 6YR 7YR 8YR 9YR 10YR
• It should be noted that the SOE Yield Curve includes all debt, unguaranteed and otherwise
• 3m – 12m yields are derived from Money Market yields and > 12m yields from Capital Market yields
• Land Bank as an Issuer of unguaranteed debt prices favourably to the SOE Curve, with pricing points as follows:
1YR = 8.48%; 3YR = 9.14%; 5YR = 9.45%; 7YR = 9.65%; and 10YR = 9.87%.
• Yield Curves derived from Reuters (Money Market) and JSE (Capital Market) data and represents current MtM yields
Land Bank Presentation 28Funding Matters
DMTN issuance summary and funding needs
Notes on the current position of the R30bn DMTN Programme
• Issued under the programme: R21.175bn During May 2018 Land Bank
• Matured: R 8.168bn increased its DMTN Programme
size to R30 billion
• Currently Outstanding: R 13.000bn (21 bonds)
• Available: R 8.825bn
Summary of significant maturities to 30 June 2019
DMTN Maturities Bi-lateral maturities
Instrument Amount Date Instrument Amount Date
LBK05 (5YR FRN) R0.252bn Feb 2019 PN’s and/ or FRN’s R0.293bn Apr 2019
LBK25 (1yr) R0.500bn Mar 2019 PN’s and/ or FRN’s * R1.100bn Jun 2019
Total R0.752bn Total R1.393bn
The total refinancing need to 30 June 2019 amounts to R0.752bn (listed bonds) and R1.393bn (PN’s and/ or FRN’s).
* - Promissory Notes with single counter party and could potentially be refinanced on bi-lateral basis
Planned DMTN Issuances to 31 March 2019 Land Bank intends to prepay ca. R1.43 billion existing, more expensive debt with
• FY2019/Q4: R1.0bn Immediate refinance need negative rating triggers linked to the Sovereign Rating and refinance same with
cheaper bond funding across similar remaining tenors.
This will effectively release all Government Guarantees across the Land Bank’s
“Commercial” funding portfolio and further reduce the State’s contingent liability
i.r.o. Land Bank
Land Bank Presentation 29Funding Matters
Summary of funding activities for FY2019/Q3
Funding activities excl. FY2019 FY2018
FY2019/Q1 FY2019/Q2 FY2019/Q3 FY2019/Q4
Call Bonds and Facilities Total Total
Total maturities R8.7bn R13.4bn R10.0bn - R32.1bn R46.4bn
Debt rolled over R8.0bn R13.1bn R9.0bn - R30.1bn R38.0bn
New funding raised * R1.6bn R1.5bn R2.7bn - R5.8bn R17.5bn
Pre-payments R1.7bn R1.4bn - - R3.1bn R3.1bn
* Land Bank has used some of the proceeds from “new funding FY2019 to date has been a good funding year with Land
raised” to pay off existing debt as follows: Bank achieving average roll-over rates as follows:
Listed Bonds (LBK05) R0.50bn
12 Month
Guaranteed Syndicated Loans R2.63bn # Roll-Over Rates FY2019/Q3
Rolling Ave
Total R3.13bn Excl. PIC/ CPD** 56.0% 70.0%
# As of 28 September 2018, the Bank’s R2.7 billion guaranteed
PIC/ CPD 100.0% 100.0%
syndicated loan has been prepaid in full, which has become too
expensive following a number of Sovereign Rating downgrades. Total 87.0% 89.0%
** This was adversely affected by certain maturities not
being rolled during the year due to Investor liquidity
needs, or at Land Bank’s insistence where investor yield
expectations were unrealistic.
Land Bank Presentation 30Debt Management Programme
Sinking Fund
Land Bank Presentation 31Debt Management Programme
Sinking Fund
• In line with the Bank’s commitment to its Shareholder, the Bank has appointed an Investment Manager/ Advisor to
establish a single/ multiple “sinking fund” structures for Bank. Such a sinking fund will further enhance the Bank’s
Balance Sheet, liquidity position, as well as reduce repayment risk of future maturing debt commitments.
• During FY2019H1, the Land Bank made its first investment into the sinking fund programme, by way of a R500million
bullet investment allocated 100% to a combination of smaller established and emerging black Asset Managers:
Manager 1 with AUM R17.4 billion – 40%;
Manager 2 with AUM R3.8 billion – 30%; and
Manager 3 with AUM R 2.6 billion – 30%.
• The Bank intends to increase this fund to ca. R1.0 billion over the short to medium term and has already earmarked a
fourth manager, a newly established majority black woman owned manager with AUM of R1.2 billion, whom will be
allocated R150 million by 31 March 2019, availability of liquidity dependent.
• Furthermore, in line with the Bank’s development/ transformation commitment Land Bank intends on placing at least
50% of these funds with black Asset Managers, while at least 50% of funds will be placed through black Brokers.
Land Bank Presentation 32Interest Rate Risk Management
Managing Basis Risk
Land Bank Presentation 33Interest Rate Risk Management
Background and Introduction
• The Bank’s main driver of earnings is Net Interest Income, which is the difference between interest received on loans
granted and interest paid on funding raised.
• As such, the Land Bank developed an Interest Rate Risk Management Strategy to manage the Bank’s basis risk where
Land Bank incurs JIBAR based interest expenses and earns Prime based interest income, as the interest rate reset
profiles of JIBAR and Prime differ and do not move parallel when interest rates move up or down.
• In addition to the management of Basis Risk, the Bank may also elect to swap floating rates to fixed rates and vice
versa.
• The swaps only entail the exchanging of cash flow payments between Land Bank and Counterparties
• The strategy was approved by Land Bank Board 29 May 2017, with implementation having commenced 1 June 2017.
• The strategy was reviewed and approved on 19 April 2018 and implementation is ongoing.
• As of FY2019Q3, the Land Bank had entered into 75 swap transactions to the nominal value of R9.92 billion with the
swaps fair value totalling R80.9 million (asset).
Land Bank Presentation 34Bond Auction
March 2019
Land Bank Presentation 35Listed Bond Auction
March 2019 Issuance – Optional redemption features
Below there are a number of conditions set out in the Programme Memorandum, to be activated in the APS,
which provides noteholders the opportunity to redeem an instrument under the following circumstances:
• Redemption in the event of a Breach of Anti-Corruption Laws or Corporate Governance Policies
• Redemption in the event of a Change of Control
• Redemption following the disposal of all or a greater part of the Issuer’s business, assets or undertakings
• Redemption in the event of a failure to maintain JSE Listing and Rating
• Redemption in the event of a Change to the Conduct of Business
The Land Bank remains committed to adhering to strict governance and control measures, and this can be
seen in the protections that it gives its debt providers
Land Bank Presentation 36Listed Bond Auction
March 2019 Issuance – Draft termsheet
DMTN Programme Details
Issuer The Land and Agricultural Development Bank of South Africa (“Land Bank”)
Issuer Rating Moody’s: Aa1.za
DMTN Programme Size R30 billion listed on the Interest Rate Market of the JSE
Transaction Details
Trade Date [20] March 2019
Settlement Date T + 3 days
Targeted Issue Size [R1.0bn] across the Notes
Instrument Listed Floating and/or Fixed Rate Notes
Stock Code [LBK34] [LBK35] [LBK33 Tap] [LBK36]
Maturity Date Mar 2022 Mar 2024 Nov 2025 Mar 2029
Term 3-year 5-year 7-years 10-years
Price Guidance [TBC] bps [TBC] bps [TBC] bps [TBC] bps
Pricing
TBC at Trade Date
Benchmark
Final tenors on offer and term-sheet will be finalized once market sounding has been concluded. This will be a
function of prevailing market conditions
Land Bank Presentation 37Notes
Land Bank Presentation 38Thank You!
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Eco Glades, Block D, Eco Park
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the context of a proposed offering of securities, if any, should be made solely on the basis of information contained within
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